How to choose the right pharmacy benefit manager

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Editor's note: The following is a contributed piece by John Crable, senior vice president at Corporate Synergies.

Employers are increasingly pulled in many directions when it comes to employee benefits. They are under pressure to maintain employee engagement and satisfaction while keeping costs under control. This is no easy feat, especially as the cost of benefits increases each year.

Your plan members typically use pharmacy benefits more than any other benefit — and these benefits are also the fastest-growing in terms of cost. So it is vital that you select the right pharmacy benefit manager (PBM) to keep your members happy and your costs under control.

The majority of employers are more sophisticated about choosing a PBM than they were just five years ago, which means expectations of what PBMs provide has changed. Previously, employers were mainly concerned with drug prices PBMs offered — transparent pricing, low markups and high rebates to help manage costs. But PBMs are now charged with helping employers manage utilization. Yes, prices, discounts and rebates all still matter — but a good price on a drug is irrelevant if the drug should not have been prescribed in the first place.

Now, employers should look to a PBM to help them manage their population and ensure that members get the best drug at the best price when it needs to be filled.

A PBM should actively manage your formulary: excluding some unnecessary drugs and putting hard edits on others; reviewing how certain drug classes, such as opioids, are prescribed; managing high-cost drugs and creating strategies to prescribe them only when necessary; and managing prescribers.

There are typically three ways employers work with PBMs:

A PBM bundled with your insurance carrier.

A "third party carve-out," in other words, a PBM that is separate from your insurance carrier.

A third party carve-out through a consortium arrangement. This could be through a broker or it could be an industry cooperative.

PBM bundled with carrier

Pros: This approach is easy to administer. You're only dealing with one carrier, one contact and one service team. Additionally, the carrier provides consolidated reporting with all information in one place.

Carriers, who obviously have some bias here, claim that they can administer medical management better when they have everything under one roof. Studies seem to vary on the validity of these claims, although some large carriers now have third-party audit firms that can show how much claims have been reduced by bundling a carrier with a PBM. In addition, as PBMs transition from being a go-between to being involved in member management, gaining easier access to data could help with this.

Importantly, several large PBMs, including CVS Caremark and Express Scripts are in talks to merge with, buy or be acquired by carriers, which will change the PBM landscape and put more integrated options out there.

Cons: Bundling reduces your flexibility. You don't control the terms of the agreement with the PBM, and you don't have control of things such as formularies, contract terms, preferred drug lists, etc. The medical carrier has the freedom to change their PBM partner, which could be disruptive to the plan participants.

Third party carve-out

Pros: Employers who choose a standalone PBM have more plan design flexibility. The third-party approach provides greater control over the terms of the contract, and the employer often saves money by cutting out the middleman. There's also an opportunity for greater transparency.

Cons: You are dealing with a separate administration, which means you have to manage another vendor and relationship. Some carriers will charge you for not using their PBMs, applying line item expenses such as reporting fees, connection fees or increased administration fees, etc. With this approach, you lose the ability for some bundled servicing. For instance, your carrier's service representative may not have access to prescription data and can't get a total picture if there's an issue. You are tasked with coordinating deductibles, out-of-pocket maximums and coinsurance between the PBM and carrier, which can get messy.

Additionally, these arrangements are often multi-year contracts, so they should not be entered into lightly.

Third party carve-out through a consortium

Pros: When you sign on with a consortium-based PBM you receive increased buying power, which should translate to lower costs. You also have a well-informed expert who's helping to negotiate and oversee the plan. In addition, buying through a consortium opens up more options to small- and mid-sized businesses in particular.

Cons: By going through a consortium, you have put another middleman back in play, meaning you have reduced flexibility. While the consortium-based PBMs push cost-savings hard in their sales process, it doesn't always play out for the employer. Specifically, you may lose control over the terms of the agreement with the PBM, and depending on the arrangement you may not have control of formularies or other pieces of the plan. Gaining full disclosure into the terms of the agreement can also be a challenge at times, meaning some consortiums do not provide full disclosure to allow for a true, autonomous comparison. In the end, you're still buying through a group, which means you may face abrupt service changes. The consortium you're buying through could change PBMs, which could mean you're stuck with no recourse but to undergo an unplanned change. This scenario, however, is not common.

Deciding on a PBM is not something that should be taken lightly, especially as prices continue to increase. But understanding how PBMs work, what your options are and how data can help you manage members could help you make a more informed decision. This will ultimately lead to cost containment and healthier employees.